<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
---------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended April 4, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________to_____________
---------------
Commission File Number 0-9653
XICOR, INC.
(Exact name of registrant as specified in its charter)
California 94-2526781
(State or other jurisdiction of (I.R.S.Employer
incorporation or organization) Identification No.)
1511 Buckeye Drive, Milpitas, California 95035
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (408) 432-8888
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
NUMBER OF SHARES OUTSTANDING AT APRIL 4, 1999
20,209,121
<PAGE> 2
XICOR, INC.
FORM 10-Q
QUARTER ENDED APRIL 4, 1999
INDEX
<TABLE>
<CAPTION>
PAGE
----
PART I: FINANCIAL INFORMATION
<S> <C> <C>
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets at April 4, 1999 1
and December 31, 1998
Consolidated Statements of Operations for the three 2
months ended April 4, 1999 and March 29, 1998
Consolidated Statements of Cash Flows for the three 3
months ended April 4, 1999 and March 29, 1998
Notes to Consolidated Financial Information 4
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL 5
CONDITION AND RESULTS OF OPERATIONS
PART II: OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. 9
SIGNATURES 10
</TABLE>
-i-
<PAGE> 3
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
XICOR, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
April 4, December 31,
1999 1998
------------- -------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 14,961,000 $ 17,881,000
Accounts receivable 9,383,000 8,835,000
Inventories 11,194,000 12,770,000
Prepaid expenses and other current assets 839,000 1,016,000
------------- -------------
Total current assets 36,377,000 40,502,000
Property, plant and equipment,
at cost less accumulated depreciation 35,065,000 38,074,000
Other assets 288,000 286,000
------------- -------------
$ 71,730,000 $ 78,862,000
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 9,382,000 $ 9,279,000
Accrued expenses 8,155,000 9,504,000
Deferred income on shipments to distributors 9,288,000 9,121,000
Current portion of long-term obligations 6,966,000 7,216,000
------------- -------------
Total current liabilities 33,791,000 35,120,000
------------- -------------
Long-term obligations 11,635,000 13,137,000
------------- -------------
Shareholders' equity:
Preferred stock; 5,000,000 shares authorized -- --
Common stock; 75,000,000 shares authorized;
20,209,121 and 20,134,427 shares outstanding 128,328,000 128,232,000
Accumulated deficit (102,024,000) (97,627,000)
------------- -------------
26,304,000 30,605,000
------------- -------------
$ 71,730,000 $ 78,862,000
============= =============
</TABLE>
See accompanying notes to consolidated financial information
-1-
<PAGE> 4
XICOR, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
------------------------------------
April 4, 1999 March 29, 1998
------------ ------------
<S> <C> <C>
Net sales $ 25,656,000 $ 27,746,000
Cost of sales 21,001,000 19,892,000
------------ ------------
Gross profit 4,655,000 7,854,000
------------ ------------
Operating expenses:
Research and development 3,559,000 4,566,000
Selling, general and administrative 5,262,000 5,498,000
------------ ------------
8,821,000 10,064,000
------------ ------------
Income (loss) from operations (4,166,000) (2,210,000)
Interest expense (392,000) (500,000)
Interest income 161,000 356,000
------------ ------------
Income (loss) before income taxes (4,397,000) (2,354,000)
Provision for income taxes -- --
------------ ------------
Net income (loss) $ (4,397,000) $ (2,354,000)
============ ============
Net income (loss) per common share:
Basic $ (0.22) $ (0.12)
============ ============
Diluted $ (0.22) $ (0.12)
============ ============
Shares used in per share calculations:
Basic 20,173,000 19,095,000
============ ============
Diluted 20,173,000 19,095,000
============ ============
</TABLE>
See accompanying notes to consolidated financial information
-2-
<PAGE> 5
XICOR, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
----------------------------------
April 4, March 29,
1999 1998
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (4,397,000) $ (2,354,000)
Adjustments to reconcile net income (loss) to
cash used for operating activities:
Depreciation and amortization 3,340,000 2,977,000
Changes in assets and liabilities:
Accounts receivable (548,000) 215,000
Inventories 1,576,000 (1,454,000)
Prepaid expenses and other current assets 177,000 59,000
Other assets (2,000) (1,000)
Accounts payable and accrued expenses (1,246,000) (681,000)
Deferred income on shipments to distributors 167,000 (2,824,000)
------------ ------------
Net cash used for operating activities (933,000) (4,063,000)
------------ ------------
Cash flows from investing activities:
Investments in plant and equipment, net (331,000) (1,679,000)
Purchases of short-term investments -- (1,097,000)
Maturities of short-term investments -- 4,056,000
------------ ------------
Net cash provided by (used for) investing activities (331,000) 1,280,000
------------ ------------
Cash flows from financing activities:
Repayments of long-term obligations (1,752,000) (1,497,000)
Net proceeds from sale of common stock 96,000 9,000
------------ ------------
Net cash used for financing activities (1,656,000) (1,488,000)
------------ ------------
Decrease in cash and cash equivalents (2,920,000) (4,271,000)
Cash and cash equivalents at beginning of year 17,881,000 21,106,000
------------ ------------
Cash and cash equivalents at end of period $ 14,961,000 $ 16,835,000
============ ============
Supplemental information:
Cash paid (refunded) for:
Interest expense $ 397,000 $ 493,000
Income taxes 5,000 (133,000)
Equipment acquired pursuant to long-term obligations -- 443,000
</TABLE>
See accompanying notes to consolidated financial information
-3-
<PAGE> 6
XICOR, INC.
NOTES TO CONSOLIDATED FINANCIAL INFORMATION
(Unaudited)
NOTE 1 - THE COMPANY:
In the opinion of management, all adjustments necessary for a fair
statement of the results of the interim periods presented (consisting only of
normal recurring adjustments) have been included. These financial statements,
notes and analyses should be read in conjunction with Xicor's Annual Report on
Form 10-K for the year ended December 31, 1998 filed with the Securities and
Exchange Commission.
NOTE 2 - NET INCOME (LOSS) PER SHARE:
Basic net income (loss) per share is computed using the weighted
average number of common shares outstanding. Diluted net income (loss) per share
is computed using the weighted average number of common shares and all dilutive
potential common shares outstanding. Options to purchase 2,324,425 shares of
common stock were outstanding at April 4, 1999, but were excluded from the
earnings per share (EPS) computation as they were antidilutive.
NOTE 3 - COMPREHENSIVE INCOME (LOSS):
The net loss for the periods reported also approximated the
comprehensive loss for such periods.
NOTE 4 - BALANCE SHEET DETAIL:
<TABLE>
<CAPTION>
April 4, December 31,
1999 1998
------------- -------------
<S> <C> <C>
Inventories:
Raw materials and supplies $ 1,383,000 $ 1,450,000
Work in process 6,044,000 7,036,000
Finished goods 3,767,000 4,284,000
------------- -------------
$ 11,194,000 $ 12,770,000
============= =============
Property, plant and equipment:
Leasehold improvements $ 17,371,000 $ 17,674,000
Equipment 121,985,000 124,371,000
Furniture and fixtures 1,887,000 1,881,000
Construction in progress 908,000 1,501,000
------------- -------------
142,151,000 145,427,000
Less accumulated depreciation (107,086,000) (107,353,000)
------------- -------------
$ 35,065,000 $ 38,074,000
============= =============
Accrued expenses:
Accrued wages and employee benefits $ 3,867,000 $ 4,038,000
Other accrued expenses 4,288,000 5,466,000
------------- -------------
$ 8,155,000 $ 9,504,000
============= =============
</TABLE>
-4-
<PAGE> 7
Accounts receivable:
Accounts receivable at April 4, 1999 and December 31, 1998 are
presented net of an allowance for doubtful accounts of $500,000.
Accrued severance costs:
During 1998 Xicor announced and began to implement a restructuring
plan to revise its manufacturing and procurement strategies to significantly
increase outsourcing of wafer fabrication and product testing to overseas
subcontractors and to streamline operations. Estimated severance costs of $1.4
million for related reductions in workforce were accrued at December 31, 1998.
During the first quarter of 1999, $0.4 million of such severance costs were
paid, with the $1.0 million balance expected to be paid by 2000.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the
accompanying Quarterly Financial Information and Notes thereto and Xicor's
Annual Report on Form 10-K for the year ended December 31, 1998 and is qualified
in its entirety by the foregoing. The results of operations for the three months
ended April 4, 1999 are not necessarily indicative of results to be expected in
future periods.
RESULTS OF OPERATIONS
Sales for the first quarter of 1999 were $25.7 million compared to
first quarter 1998 sales of $27.7 million. First quarter sales were lower than
in the prior year quarter primarily due to lower average selling prices. Sales
for the 14-week fourth quarter of 1998 were $26.9 million, which corresponds to
sales of approximately $25 million on a 13-week basis. Sales for the 13-week
first quarter of 1999 increased 3% compared to the fourth quarter 1998 sales run
rate.
Gross profit as a percentage of sales was 18% in the first quarter of
1999, compared to 28% for the comparable prior year quarter. The decline in the
1999 gross profit percentage was primarily due to lower average selling prices
and underutilization of Xicor's in-house wafer fabrication plant. After the
first quarter of 1998, Xicor substantially reduced the production volume in its
factory in response to declining business conditions. The unfavorable overhead
variances resulting from the fixed nature of certain manufacturing costs and the
smaller number of units in production were expensed. To control wafer
fabrication costs, Xicor continued to limit wafer output at its in-house plant
to about a third of its full capacity. Although the income statement was
burdened by the related factory underutilization, the 18% first quarter 1999
gross profit percentage improved compared to 15% for the fourth quarter of 1998
primarily due to cost reduction measures.
-5-
<PAGE> 8
Research and development expenses were 14% of sales in the first
quarter of 1999 compared to 16% in the comparable prior year quarter. Research
and development expenses decreased primarily due to lower personnel and
depreciation costs.
Although selling, general and administrative expenses decreased
slightly in absolute dollars, due to the lower sales level they were 21% of
sales in the first quarter of 1999 compared to 20% in the comparable prior year
quarter.
Interest expense decreased in the first quarter of 1999 compared to
the 1998 quarter due to normal principal payments of outstanding lease debt.
Interest income decreased in the first quarter of 1999 compared to
the comparable prior year quarter due to a decrease in the average balance
invested caused primarily by funds used for operating activities during 1998 and
the first quarter of 1999, ongoing debt repayments and 1998 capital asset
purchases.
No taxes were provided in 1999 or 1998 due to the net loss. Net
deferred tax assets of $44.7 million at December 31, 1998 remain fully reserved
because of the uncertainty regarding the ultimate realization of these assets.
At the beginning of 1999 Xicor raised prices on most of its memory
products. Based on order levels to date, Xicor anticipates that sales will
increase modestly in the second quarter of 1999 compared to the first quarter of
1999. Additionally, a slight improvement in the gross margin percentage is
projected for the second quarter of 1999, provided customer demand holds.
However, Xicor expects to continue to incur net losses during 1999 principally
due to the high fixed cost level and expected continued underutilization of its
wafer fabrication facility.
During 1998 Xicor announced and began to implement a restructuring
plan to change its manufacturing and procurement strategies to significantly
increase outsourcing of wafer fabrication and product testing to overseas
subcontractors and to streamline operations. In the second quarter of 1999 Xicor
entered into agreements with ZMD GmbH of Germany and Sanyo Electric Co., Ltd. of
Japan to fabricate wafers for Xicor. These foundry relationships are intended to
supplement Xicor's foundry activities with Yamaha, Ltd. of Japan, which
currently produces about a third of Xicor's wafer requirements. With this
additional foundry capability, Xicor has now set a goal to eventually outsource
all wafer fabrication operations in the long-term.
LIQUIDITY AND CAPITAL RESOURCES
During 1999 Xicor expects to use cash to fund operating activities,
repay long-term obligations and purchase equipment. In the first quarter of
1999, Xicor used $0.9 million of cash for operating activities, $1.8 million to
repay long-term obligations and $0.3 million for equipment purchases. Capital
expenditures for 1999 are currently planned at approximately $2 million. At
April 4, 1999, Xicor had entered into commitments for equipment purchases
aggregating less than $0.5 million.
-6-
<PAGE> 9
Xicor has a line of credit agreement with a financial institution
that expires March 31, 2000, provides for borrowings of up to $7.5 million
against eligible accounts receivable and is secured by all of Xicor's assets.
Interest on borrowings is charged at the prime lending rate plus 2% and is
payable monthly. At April 4, 1999, the entire $7.5 million was available to
Xicor based on the eligible accounts receivable balances and the borrowing
formulas. To date, no amounts have been borrowed under this line of credit.
Management believes that currently available cash and the existing line of
credit facility will be adequate to support Xicor's operations for the next
twelve months.
"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995
This quarterly report contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934, including statements regarding the expectation
of a sequential modest increase in sales and slight improvement in the gross
margin percentage in the second quarter of 1999 if customer demand holds, the
continuation of net losses and underutilization of Xicor's in-house wafer
fabrication plant in 1999, the intent for the ZMD GmbH and Sanyo Electric Co.,
Ltd. foundry relationships to supplement Xicor's foundry activities with Yamaha,
the goal to eventually outsource all wafer fabrication operations in the
long-term and the expectation that currently available cash and the existing
line of credit facility will be adequate to support Xicor's operations for the
next twelve months.
Except for historical information, the matters discussed in this
Quarterly Report are forward-looking statements that are subject to certain
risks and uncertainties that could cause the actual results to differ materially
from those projected. Factors that could cause Xicor's actual results to differ
materially include the following: general economic conditions and conditions
specific to the semiconductor industry, fluctuations in customer demand,
competitive factors such as pricing pressures on existing products and the
timing and market acceptance of new product introductions, Xicor's ability to
have available an appropriate amount of competitive cost foundry production
capacity in a timely manner, manufacturing efficiencies, the ability to continue
effective cost reductions, the timely development of new products and submicron
processes, the ability of Xicor, its customers, vendors and subcontractors to
make their systems Year 2000 compliant, and the risk factors listed from time to
time in Xicor's SEC reports, including but not limited to the "Factors Affecting
Future Results" section following and Part I, Item 1. of Xicor's Form 10-K for
the year ended December 31, 1998. Readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of the date
hereof. Xicor undertakes no obligation to publicly release or otherwise disclose
the result of any revision to these forward-looking statements which may be made
as a result of events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events.
FACTORS AFFECTING FUTURE RESULTS
The semiconductor industry is highly competitive and characterized by
rapidly changing technology and steadily declining product prices. The current
business climate has and will continue to result in less than optimum
utilization of Xicor's wafer fabrication factory, which will adversely affect
Xicor's business and results of operations. Xicor's results of operations are
affected by a wide variety of factors, including general economic conditions and
conditions
-7-
<PAGE> 10
specific to the semiconductor industry, decreases in average selling price over
the life of any particular product, the timing of new product introductions
(both by Xicor and competitors), availability of new manufacturing technologies,
the ability to secure intellectual property rights in a rapidly evolving market
and the ability to have an appropriate amount of production capacity in a timely
manner. The sales level in any specific quarter is also a function of orders
received during that quarter, as customers continue to shorten lead times for
purchase commitments. Consistent with industry practice, customer orders are
generally subject to cancellation by the customer without penalty. Xicor may be
at a disadvantage in competing with major domestic and foreign concerns that
have significant financial resources, established and diverse product lines,
worldwide vertically integrated production facilities and extensive research and
development capabilities.
The semiconductor industry is also characterized by substantial
capital and research and development investment for products and processes. The
rapid rate of technological change within the industry requires Xicor to
continually develop new and improved products and processes to maintain its
competitive position. Xicor expects to continue to invest in the research and
development of new products and manufacturing processes during 1999, although
there can be no assurances that such research and development efforts or new
products will be successful.
Xicor uses a significant number of computer software programs and
operating systems and intelligent hardware devices in its internal operations,
including information technology (IT) systems and non-IT systems used in the
design, manufacture and marketing of company products. These items are
considered to be Year 2000 "objects" and to the extent that these objects are
unable to correctly recognize and process date dependent information beyond the
year 1999, some level of modification or replacement is necessary.
Xicor's Year 2000 Compliance Program addresses Xicor IT and non-IT
systems, Xicor products, key suppliers and key customers. The compliance program
consists of five phases: Planning, Assessment, Renovation, Validation and
Implementation. At the end of the first quarter of 1999, Xicor had completed the
Planning and Assessment phases with respect to its internal operations and is in
the Renovation phase. Some systems are in Validation and some systems are in
Implementation. Company actions have and continue to include replacing certain
systems, while modifying others. Xicor plans to have all critical objects that
would prevent Xicor from meeting its customer commitments completed by mid-1999.
Xicor believes its products are Year 2000 compliant. Xicor is also actively
working with key suppliers of products and services to determine that the
suppliers' operations and the products and services they provide are Year 2000
compliant. Xicor has begun developing contingency plans for Year 2000
non-compliance. These plans include identifying alternate suppliers, vendors,
procedures, generating supply and equipment lists, conducting staff training and
developing communication plans. In addition, Xicor will develop a contingency
command and control center to handle all issues. Each contingency plan is based
on a risk assessment being done on each component that might fail. In some
cases, the contingency plan will be to get the system modified and operational
as soon
-8-
<PAGE> 11
as possible. Based on currently available information, the incremental costs
associated with these efforts are expected to be less than $1.0 million, a
portion of which relates to the purchase of software and hardware and will be
capitalized. Most of these costs are expected to be incurred in mid-1999.
Year 2000 compliance issues could have a significant impact on
Xicor's operations and its financial results if modifications cannot be
completed in a timely manner; unforeseen needs or problems arise; or, if the
systems operated by Xicor's customers, vendors or subcontractors are not Year
2000 compliant.
Xicor has an investment portfolio of fixed income securities that are
classified as "held to maturity securities". These securities, like all fixed
income instruments, are subject to interest rate risk and will fall in value if
market interest rates increase. Xicor attempts to limit this exposure by
investing primarily in short-term securities. In view of the nature and mix of
Xicor's total portfolio a movement of 10% by market rates would not have a
material impact on the total value of the portfolio at April 4, 1999.
From time-to-time Xicor makes certain purchases denominated in
foreign currencies. As a result, Xicor's cash flows and earnings are exposed to
fluctuations in interest rates and foreign currency exchange rates. Xicor
attempts to limit these exposures through operational strategies and generally
has not hedged currency exposures.
Due to the foregoing and other factors, past results are a much less
reliable predictor of the future than is the case in many older, more stable and
less dynamic industries. In addition, the securities of many high technology
companies, including Xicor, have historically been subject to extensive price
and volume fluctuations that may adversely affect the market price of their
common stock.
PART II: OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
27 Financial Data Schedule
(b) Reports on Form 8-K:
No reports on Form 8-K were filed with the Securities and Exchange
Commission during the quarter ended April 4, 1999.
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<PAGE> 12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
XICOR, INC., a
California Corporation
By /s/ Raphael Klein
-----------------------------------------
Raphael Klein
Chief Executive Officer
(Principal Executive Officer)
By /s/ Geraldine N. Hench
-----------------------------------------
Geraldine N. Hench
Vice President, Finance
(Principal Financial Officer)
Date: May 14, 1999
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<PAGE> 13
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-02-2000
<PERIOD-START> JAN-04-1999
<PERIOD-END> APR-04-1999
<CASH> 14,961,000
<SECURITIES> 0
<RECEIVABLES> 9,883,000
<ALLOWANCES> 500,000
<INVENTORY> 11,194,000
<CURRENT-ASSETS> 36,377,000
<PP&E> 142,151,000
<DEPRECIATION> 107,086,000
<TOTAL-ASSETS> 71,730,000
<CURRENT-LIABILITIES> 33,791,000
<BONDS> 0
0
0
<COMMON> 128,328,000
<OTHER-SE> (102,024,000)
<TOTAL-LIABILITY-AND-EQUITY> 71,730,000
<SALES> 25,656,000
<TOTAL-REVENUES> 25,656,000
<CGS> 21,001,000
<TOTAL-COSTS> 21,001,000
<OTHER-EXPENSES> 3,559,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 392,000
<INCOME-PRETAX> (4,397,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,397,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,397,000)
<EPS-PRIMARY> (0.22)
<EPS-DILUTED> (0.22)
</TABLE>
